Modernization of Regulation S-K Items 101, 103 and 105

Aug 27, 2020
Aug 27, 2020
0 min. read
Audit Financial reporting SEC matters

The SEC recently issued a final rule, Modernization of Regulation S-K Items 101, 103, and 105, which includes the following revisions, among others:

  • Item 101(a), General development of business - Now largely principles-based, this regulation requires disclosure of information material to an understanding of the general development of a registrant’s business. The revised regulation also:
    • Eliminates the previously prescribed timeframes for this disclosure
    • Permits a registrant, in filings made after its initial filing, to provide only an update of the general development of the business focused on material developments that have occurred since its most recent filing containing a full discussion of the general development of its business, which must be incorporated by reference
  • Item 101(c), Description of business
    • Clarifies and expands its principles-based approach with a nonexclusive list of disclosure topic examples drawn in part from the topics previously in Item 101(c)
    • Includes, as a disclosure topic, human capital resources
    • Refocuses the regulatory compliance disclosure requirement by including as a topic all material government regulations – not just environmental laws
  • Item 103, Legal proceedings, now expressly states that the required information about material legal proceedings may be provided by including hyperlinks or cross-references to legal proceedings disclosure located elsewhere in the document. The revised regulation also increases the quantitative threshold for disclosure of environmental proceedings to which the government is a party from $100,000 to $300,000 with flexibility for the registrant to select a different disclosure materiality threshold, provided that the threshold does not exceed the lesser of $1 million or one percent of the registrant’s consolidated current assets.
  • Item 105, Risk factors
    • Requires summary risk factor disclosure of no more than two pages if the risk factor section exceeds 15 pages
    • Changes the disclosure standard from the “most significant” risk factors to the “material” risk factors
    • Requires risk factors to be organized under relevant headings in addition to the subcaptions currently required
    • Discourages the presentation of risks that could apply generically to any registrant or any offering, and states that if such risk factors are presented, they must be disclosed at the end of the risk factor section under a separate caption, “General Risk Factors”